Thursday, October 11, 2018

Zhang on Property and Sociopolitical Change

Contemporary property theory highlights information costs as the most important determinant of exclusion rights and numerus clausus-type standardization: rising information costs lead to stronger exclusion rights and more standardization — that is, a reduction in the number of allowed property forms — whereas falling information costs have the opposite effect. What this paradigmatic model lacks, however, is a theory of how and why information costs change in the first place. By developing such a theory, this article demonstrates that the legal impact of information costs is systemically counterbalanced by concurrent changes in individual preference, and that preexisting predictions about the relationship between information costs, exclusion, and standardization are therefore partially wrong, and otherwise incomplete.

Scholars have long understood that information costs, especially those related to property, are negatively correlated with social and political cohesion: tighter communities and stronger states correlate with lower information costs, whereas sociopolitical disintegration correlates with higher information costs. But this is only half the picture: sociopolitical cohesion is also negatively correlated with the diversity of individual preferences, in that higher levels of sociopolitical cohesion homogenize preferences, whereas sociopolitical disintegration diversifies them. Information costs and preference diversity therefore tend to be synchronized: when information costs rise (or fall), so does preference diversity.

Recognizing this synchronization dismantles some of the central predictions of current property theory, but reinforces others. Most importantly, it implies that there is probably no empirical correlation between information costs and legal standardization. Although rising information costs incentive more standardization, simultaneous increases in preference diversity will incentive less standardization to accommodate the expanding range of individual preferences. Either side can emerge victorious from this legal tug-of-war. The article identifies, in fact, several major historical episodes in which a sharp rise in information costs was, contrary to current theoretical predictions, followed by less standardization and the creation of new property forms. In contrast, the positive correlation between information costs and exclusion rights is perhaps even stronger than what current theory predicts: rising information costs boost the attractiveness of exclusion-based private property regimes, but so does the corresponding increase in preference diversity.